AZ Policy Wonk

It’s a familiar story these days: Top executives reaping disproportionately large salaries and mind-boggling bonuses while executing poor business strategies and laying off hordes of employees.

It’s happened in the finance industry, construction, automobile manufacturing, computer software and beyond. But now, we can count the newspaper industry among them.

Julie Moreno, who became the publisher of the East Valley Tribune in 2008, was paid more than $334,000 in salary, benefits, bonuses and expense reimbursements during the past year, according to Freedom Communications Inc. bankruptcy documents filed Oct. 31.

As part of that package, Moreno was paid a lump sum of $57,949 to relocate to the Valley from Yuma, where she was publisher of Freedom Communications’ second-largest Arizona paper, the Yuma Sun. Yuma, by the way, is 203 miles from Mesa.

She was given two bonuses in early 2009 that totaled $65,456. The first bonus of $37,123 under the company’s MBO program was paid on Feb. 13. The second, for $28,333, was paid on March 13.

The filings detailed Moreno’s compensation from Sept. 1, 2008, through Aug. 31, 2009. During that 12-month period, more than 150 employees were laid off, low-level employees were forced to take unpaid furloughs in addition to 5 percent salary reductions, the 401k match was suspended, and the company’s net revenue plummeted.

Then, on Nov. 2, the 118-year-old paper announced it will cease operations entirely at the end of this year.

The East Valley Tribune’s demise was swift; during the past three years, the company went from an 83,000-circulation daily newspaper that was adding staff and trying to expand its coverage across the Valley to a free paper distributed on racks three days per week.

Since the beginning of 2008, more than 40 percent of its staff was fired, pages of news were eliminated and what was once a proud broadsheet became a tabloid.

The changes resulted in drastically reduced revenue figures. Freedom Communications reported its Arizona operations garnered revenue of $70.2 million in 2007, $53.3 million in 2008 and $17.5 million so far in 2009. The bankruptcy filings also show Freedom’s Arizona division hasn’t been profitable for the past two years.

The worst of times occurred while Moreno was in charge of the paper, but it would be unfair to say she caused the paper’s problems. The economic downturn and increased marketing opportunities on the Internet represent a double-edged sword that has cut the heart out of the newspaper industry.

Newspapers across the country, in a panic, have reconfigured their business plans to meet the needs of the new marketplace. Cutting expenses has been the norm, and wholesale reformation has been tried in some instances.

The East Valley Tribune was one paper that tried an entirely different approach, and it didn’t start under Moreno’s leadership. I should know – I was there.

In April 2007, former Arizona Republic executive Terry Horne replaced longtime East Valley Tribune publisher Karen Wittmer. While Wittmer was respected by the staff, there was great fanfare when Horne took over. He was hard-charging, spoke frankly and, in a way, had declared war on his former employer. It was exactly what we wanted to hear.

Before he took over, Horne tasked everyone on staff to list what each of us thought the paper was doing wrong and what should be done to improve it. Some of us wrote lengthy responses. I was a mid-level editor at the paper at that time, and my response was eight pages long. A reporter on my team wrote 12 pages.

Several of us noted that the paper was focusing too much energy and money on trying to retain its position in Scottsdale and Tempe, while the Republic appeared to be devoting far more resources to those areas. We suggested redirecting our resources to our stronghold in Mesa and Gilbert, as well as northwestern Pinal County and the eastern cities in Maricopa County, where the Republic was almost non-existent.

Horne, in one of his first acts as publisher, called a series of group meetings to discuss our share of the market in various cities as compared to the Republic’s. He produced compelling figures that indicated we were, indeed, losing the battle in Scottsdale and Tempe. And, frankly, we weren’t doing so hot in some areas of Mesa. In short, our circulation was falling in almost every area.

Weeks later, he unveiled a plan to recreate the paper. The daily edition was going to be distributed free and we were going to publish fewer news pages. In fact, rumor had it we were going to stop publishing the larger broadsheet editions and switch to a tabloid format.

Despite these landmark changes, most of the staff was excited. We believed in Horne. We thought it would work. After all, Horne knew what the Republic knew, and he was ready to do battle.

He must have impressed the corporate folks as well; a few months later they promoted him to president and publisher of Freedom Communications’ flagship paper, the Orange County Register. He was replaced by Moreno, who also served as regional vice president of Freedom’s Pacific Region.

Moreno told me during an interview on Nov. 4 that she was largely an observer during the time Horne and other Freedom executives discussed the new strategies. But she said she believed the plan was solid and she was on board to implement it when her time came. In fact, she still believes it was a good strategy.

“I think that, directionally, the changes make sense, given what we face here in this particular market,” she said. “What we’re dealing with is an economy that has presented challenges for all of us. It becomes very difficult to separate what might be an impact from the model from what might be happening in the broader economy in general. But, directionally, I don’t believe the model was wrong.”

Wrong or not, the concept didn’t work.

During a meeting in October 2008, Moreno announced the elimination of 142 positions, saying “We must turn the boat while we have the opportunity to do that. … We have to position the Tribune to be part of the community for the long term.”

On March 20, a week after Moreno was given a bonus of more than $28,000, the company forced remaining employees to take unpaid furloughs.

That day, Freedom CEO Scott Flanders said: “Freedom continues to generate positive cash flow, and we see the furlough program as a sound business and financial move to help weather the present severe economic conditions that we believe will improve by year-end.”

Conditions didn’t improve. On April 13, more layoffs were announced and the paper transitioned to three-day publication.

Moreno said the layoffs and, later, the decision to close the paper were “gut-wrenching.”
“You never want to see the day happen, because you’re impacting your work force,” she said. “And with the newspaper, it’s not just a job for a lot of people. It’s an organization with a unique identity in the community. When you tell people you work for the newspaper you get, in some circles, a lot of respect for that. For associates who work here, they’re extremely loyal. It’s very difficult. And you know you’re leaving a void for your readers. Words cannot describe how that feels. It’s just not a good day.”

Moreno refused to discuss her compensation package.

“I’m really not at liberty to discuss my compensation,” she said. “It’s not something I care to discuss at this point.”

In the end, hundreds of people will lose their jobs as a result of the Tribune’s demise. But Moreno is not one of them. She will continue on with Freedom in her executive role.

“At the time being, I have a dual role with freedom. I also serve as pacific region vice president. I will likely continue with Freedom in some role,” she said. “Beyond that, I don’t have a necessarily clear assignment at this point.”

Neither do the reporters and other staffers, many of whom own homes here and have raised their families with meager salaries during the past several decades.

Full disclosure: I worked at the Tribune from the beginning of 2006 until December 2007. I left voluntarily to take a job as managing editor of the Arizona Capitol Times. I do, however, have friends who were laid off after I left the Tribune.

Just prior to the Aug. 31 announcement that Freedom Communications Inc. was seeking bankruptcy protection, it appears there was a last-ditch effort to sell a large portion of Freedom’s assets in Arizona, including the East Valley Tribune.

It’s not clear whether any agreement is under consideration now – there was a deadline to act by Aug. 31 – but an industry source offered some details about how the deal was structured.

First, it would have been a two-phase deal that included the purchase of two commercial buildings, four newspapers, a marketing company and a web-design business. The deal would have cost the buyers $2 million, with a first-phase payment of $200,000 due by noon on Aug. 31. Because the deal didn’t close at that time, it’s not clear whether any arrangement is still in the works.

The four newspapers included in the deal are reported to have a total circulation of 100,000. They have about 265 employees.

The marketing company that would have been sold is The Clipper, along with a web-design company called AZ Interactive Media Group.

The first phase of the deal would have included everything listed above except for the two buildings, appraised at roughly $8 million, and three printing presses, which include a $4 million press purchased last year.

Phase two was supposed to close within 90 days.

But here’s where it gets interesting: The industry insider I spoke with said two California businessmen were behind the deal to buy Freedom’s Arizona assets. One was David Ganezer, of the Santa Monica Observer, and the other was Steve Hadland, who runs the Culver City Observer and is CEO of the Santa Monica Media Company.

Hadland was part of a failed acquisition bid for the Tucson Citizen earlier this year. Ganezer acted as company spokesman. The bid failed when Gannett Co. refused to accept less than $800,000 for the Citizen. The original asking price was $1 million, and Hadland reportedly offered about $500,000. The Citizen now operates as a web-only publication.

As part of the deal for the Freedom assets, the buyers would have assumed $100,000 cash and $1.5 million in receivables that were part of the Arizona newspapers’ financial portfolio.

But they also would have assumed an unkown amount of liability, which could include any outstanding debt and other liability costs. I was going to try to ballpark the deferred subscription liability based on subscription price, but because the East Valley Tribune is no longer subscription-based and charges only for delivery (if you don’t feel like picking up a free edition at various newsstands across the East Valley), it’s not clear how much the total deferred subscription liability would have been.

But any readers who had paid for delivery would be entitled to continue receiving their papers for the term of their delivery contract. Right now, the East Valley Tribune charges about $13 per month for delivery. The paper is published three days per week.

Ganezer and Hadland apparently were in communication with Freedom during the week prior to the bankruptcy filing, according to the industry source. They most likely worked out a tentative deal, at least in concept, and were trying to raise cash from investors.

I’m surmising that the agreement has fallen apart because, according to the industry insider, the deadline was not met. But that doesn’t mean the whole thing is off the table.

I have attempted to get in touch with both Ganezer and Hadland for comment. Ganezer called back but said he was not authorized to discuss the arrangement. Hadland hasn’t responded to an e-mail.

Lastly, it’s not clear which of the other Freedom papers in Arizona would have been part of the deal. The East Valley Tribune’s sister publications include the Ahwatukee Foothills News, the Daily News-Sun, Freedom Politics, Glendale Today, Peoria Today, Surprise Today and YourWestValley.com.

More information about the Culver City Observer can be found at http://www.culvercityobserver.com. More information about the Santa Monica Observer can be found at http://www.smobserver.com.

Full disclosure: I am a former East Valley Tribune editor. I left the paper in 2007 before the first round of layoffs in the newsroom.